Mega projects to boost Arab capital inflow

Improvement is also a result of economic recovery, reforms and big power investment

By

Nadim Kawach

PublishedSunday, October 31, 2010

Saudi Arabia, the world’s dominant oil power and largest Arab economy, remained the top FDI recipient in the region despite a decline in 2009. (SUPPLIED)

Massive projects exceeding $one trillion in the Arab countries will ally with better economic performance to stimulate capital flow into the region in 2010 and the following years after a slump in 2009, official forecasts have shown.

A recovery in the economies of the United States and the European Union following nearly two years of a downturn could also boost their funds flow in the region to take advantage from surging projects and better investment regulations, said the Inter-Arab Investment Guarantee Corporation (IAIGCC).

In a new report on the prospects about foreign direct investment (FDI) in the Arab world, The Kuwaiti-based group said such flows could recover by nearly 15 per cent after a plunge of around $17 billion in 2009. It said FDI flow into the 21 Arab nations could rise to one of its highest levels of $91 billion this year.

“One of the main reasons for the increase in FDI flow into the Arab world this year and thee following years is the massive investment opportunities available in several member states,” said IAIGC, a key Arab League establishment.

Its figures showed more than $one trillion worth of projects in infrastructure, energy and other sectors are planned in the region for the next years.

Over $750 billion of those projects have been announced and projects worth around $200 billion are based in the six-nation Gulf Cooperation Council.

“Another key factor is the projected improvement in the economies of the Arab countries as forecasts by the International Monetary Fund show growth could reach 4.5 per cent this year…the combined trade of Arab nations could also rise by 14 per cent to $1.9 trillion this year while most regional stock markets have recorded relative stability over the past period.”

According to IAIGC, foreign capital flow into the Arab world plunged by nearly 18 per cent in 2009 because of the global fiscal crisis but it is forecast to rebound by up to 15 per cent to $91 billion this year.

The expected increase will follow a decline in FDI into the region from around $96.9 billion in 2008 to nearly $79 billion in 2009 in line with a general world trend caused by the 2008 global economic downturn, the report said.

“IAIGC also expects an increase in capital flows into the Arab world from the US and the EU following the gradually recovery in their economies the signing of several partnership agreements between them and Arab nations,” it said.

“The investments from those countries and other areas in the world will be attracted by ongoing reform programmes in most regional states…our records show that 16 Arab nations have carried out such reforms in 38 sectors…this has largely improved the business environment.”

IAIGC’s figures showed FDI flow into the Arab world jumped in 2008 because of a surge in their economies after oil prices leaped to their highest ever average of around $95 a barrel and oil output was at one of its highest levels.

But the flow recorded one of its largest falls in 2009 after a sharp slowdown in investments from major industrial power because of the crisis.

Qatar, the world’s top LNG exporter, was an exception in the region last year as it recorded a massive increase in FDI to around $8.7 billion from nearly $4.3 billion in 2008 as a result of accelerating investment by its gas partners.

The UAE, which had emerged as the second largest FDI destination in the region after Saudi Arabia over the past three decades, suffered from one of its most painful drops in capital inflow, which plunged to around $four billion last year from nearly $13.7 billion in 2008, according to IAIGC.

Saudi Arabia, the world’s dominant oil power and largest Arab economy, remained the top FDI recipient in the region despite a decline in 2009. IAIGC figures showed the Kingdom received around $35.5 billion in FDI last year compared with a record high $38.1 billion in 2008.

“Another factor that will attract foreign funds into the region is the sharp increase in the financial surpluses of some major companies in telecommunications, tourism, real estate and banking, mainly those in the UAE, Saudi Arabia and Qatar,” IAIGC said. “Many of these companies have revealed plans to invest $billions in some Arab countries, including Egypt, Morocco, Yemen, Tunisia, Algeria, Jordan and Sudan….there is no doubt these plans will have a strong positive impact on capital flow in the Arab world and at the same time allow those companies to exploit their surpluses in good investment opportunities.”